Amazon is not bad; it’s just drawn that way

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Amazon and similar multinational companies have grown to become an essential part of world trade. Instead of going to the store, the store now comes to you. Well, this is convenient for the consumer, but what does it do to our cities? In the long run, the short-term profit of the private firm comes at what expense to the entire community?

Controlling the Road

Those familiar with the urban mathematical model understand that the Hassle-Distance is the key to the power and size of cities. The concept of Hassle-Distance is exactly what Amazon seeks to tackle as its ultimate business strategy. Amazon Prime, for example, is a service where the customer’s Hassle-Distance is reduced to zero, regardless of the product.

The classic product we associate with Amazon and its beginning are books—the product is defined by uniformity in price and quality. In fact, what determines where you buy the book you are looking for is the hassle required to get it. In the past, that hassle involved getting to the bookshop. Since it did not make sense to travel more than twenty minutes to buy a book, those shops were scattered at walking distance from city center, and you could find that small shop just around the corner.

However, with the introduction of Amazon, the distance for the customer is reduced to zero. Amazon has taken upon itself the hassle to obtain the product. As we have seen, Hassle-Distance is not only the actual distance or price but also a cognitive perception. The initial hassle with which Amazon entered the market included the fear of paying online, the fear that the merchandise would not arrive, delayed shipment, and so on. Amazon is systematically erasing all these distances. Once the payment fear was resolved, they started working on reducing delivery time. Now, it deals with securing the arrival of the goods to the customer (e.g., the possibility of the courier bringing goods inside your home even if it is locked) and more.

Amazon erases urban commerce

Amazon’s ability to reduce Hassle-Distance the power of urban markets to exclusively supply a product. Bookstores were the first to disappear; soon, they were followed by toy, shoe, fashion, and cosmetic stores. In fact, everything that is not “nailed to the floor;” that is, any business interaction that does not require a customer service where the customer actually meets with the supplier of the service (e.g., hairdresser, garage, coffee shop), will be affected over time. If we add to the equation the delivery services of restaurants, we’ll find that the city center is facing huge economic losses. The kitchens that provide food do not actually need to be located in a downtown restaurant. It is easier and cheaper to have a kitchen for delivery in a warehouse in another part of town—a kitchen that can easily make pizza for Pizza-hut, hamburgers for McDonald’s, and donuts for Dunkin Donuts. The most important thing is the logistics associated with the delivery: A centralized and scaled operation would provide overwhelming advantages over smaller competitors.

Amazon has positioned itself to take advantage of this kind of centralization. By controlling what I call the “silk road”—the distribution channel and supply lines—Amazon can control manufacturing, pricing, and the market. Fighting for control over supply routes that link suppliers to their customers is not new. Pirates, highwaymen, fortresses, cities and armies have all engaged in that struggle to gain this advantage for their traders. Amazon differs in that it is also the road itself. It is also very aggressive in taking on merchants. Let’s say you are a successful supplier; eventually, you will get an “offer you cannot refuse” to accept Amazon as a partner. When Amazon controls the supply routes between you and your customers, you will find it difficult to bargain a fair deal. After all, you have competitors in the market and Amazon can easily collaborate with them against you. The choice is simple: Take it or leave.

I want to focus on the mechanism that makes Amazon such a grave threat to the city—Hassle-Distance. Reducing the Hassle-Distance to zero could lead to a total collapse of the market model described by Nash. This model provides the basis for how cities are built and maintain their power. If Globalization is about making the world flat and close, with the distance reduced to zero, we have now to a certain extent reached our limit. In the past, the economic competition for any city came from other cities; however, now, the threat of competition comes from multinational invaders, such as Amazon—an invader that might as well be from Mars in terms of its foreignness compared with other conventional forms of competitors. An invader that can, at a moment’s notice, move its mother-ship, it’s warehouses, from a US desert town to Europe. Amazon does not need a city to survive; it’s too big.

The Hassle-Distance was the factor that limited the Suppression Zone of any urban agglomeration. Once Hassle-Distance decreases to zero, the Suppression Zone increases to infinity. This is the first time in history that the Suppression Zone is able to cover the entire planet.

The way this Martian invader takes over a city is exactly the same as in the old economy. The difference is in intensity rather than a method. In both past and present cases, the individual’s aspiration to profit harms the community. Consumer preferences are the very thing that drives augmentation and are also the very thing that will hurt consumers in the long run. As I have shown before, the invisible hand of the market aspires to one stable state – augmentation. Any other situation is mathematically not stable.

Today’s market conditions and technology are the forces responsible for creating Amazon. In the long term, investor inability to resist any immediate profit, customer preference for price and convenience in the next immediate product, and the aspiration for individual profit affect the entire community. We are the ones that have created the Amazons of this world. We are the ones who invited these Martian invaders!

The end game

I predict that eventually Amazon will be too powerful, and legislators will have no choice but to dismantle it. Amazon and Google have very powerful lobbies in the United States, but the more they strengthen, the weaker they will become in Europe and the rest of the world outside of the United States. We have already seen how European regulations become global regulations. Another threat to Amazon is, of course, the Alibaba, their Chinese competitor. The real battle, though, will be fought on European soil. Already, there are voices calling for Google and Amazon to forcibly have their divisions broken into different companies. I imagine that in the future there will be a push to disassemble Amazon into a delivery and shipping company and a trading company to break its excessive agglomeration.

Amazon is not inherently bad. The hidden hand of the economy is also not inherently bad; it is just indifferent and drawn that way. No one is purposefully committing immoral acts; nonetheless, the impact on our cities is damaging.